The General Meeting during the state of emergency?

March 18, 2020  |  Companies

Can it take place? And can it be convened? Do crisis measures contain an exception for meetings of the statutory organs of the company (e.g. board meetings)? What are the parameters of due and correct business conduct for a manager during a state of emergency?

An emergency measure of the Ministry of Health dated 10 March 2020 prohibited, with effect from the same day, the holding of public and private events and other gatherings with the participation of more than 100 persons. However, by express derogation, the measure allowed meetings, sessions and similar events of private persons which are held on the basis of law and cited the general meeting of the public limited company as an example.

On 12 March 2020, the Government of the Czech Republic declared a state of emergency from 12 March 2020 to 11 April 2020 by means of Resolution No. 194 for the territory of the Czech Republic due to severe health threats. In connection with this resolution, the Government also decided on the issuance of emergency measure Resolution No. 199, which, with effect from 13 March 2020, abolished the said emergency measure of the Ministry of Health. The reason was the extension and at the same time tightening of the ban on public and private events, which the government set a limit of no more than thirty persons. By way of derogation from this prohibition, it then did not again expressly state the new possibility of holding meetings, meetings and similar events of private persons held by law and admitted only meetings of public authorities. This clearly shows the Government's intention to limit the number of meetings of private legal entities with more than 30 persons at a time of emergency.

On 16 March 2020, the Government of the Czech Republic, by Resolution No. 215 with effect from 16 March 2020 to 24 March 2020, declared a ban on the free movement of persons on the territory of the Czech Republic and at the same time lifted the ban on public and private events with more than 30 people as set forth in Resolution No. 199. Within the new crisis measure, it did not import any of the exceptions for meetings, meetings and similar events, whether private persons or public authorities. What does this mean for companies?

The progressive development of emergency and crisis measures implies that the general exemption for meetings of private bodies has been abolished after the state of emergency. Since the prohibition of free movement constitutes a stricter measure than the previous one, it can be assumed that the prohibition on the holding of meetings, sessions and similar events is implicit in it. This systematic interpretation also corresponds to a logical interpretation, since if the previous (milder) measure deleted the possibility of holding meetings, sessions and similar events of private persons, including the example of the general meeting of a joint stock company, then logically this prohibition is enshrined in the subsequent (stricter) measure.

In terms of its purpose, Resolution No. 215 was issued to prevent the free movement of persons, unless it is strictly necessary for the needs expressly stated in the Resolution. Among these, travel to work and the pursuit of business or other similar activity are expressly permitted. Participation in the general meeting should be considered as the exercise of shareholder (ownership) rights rather than as a business activity. For these and many other reasons, Resolution No. 215 prohibits a meeting of company bodies in which a physical meeting of persons would occur without the necessary and absolutely necessary action to ensure security, internal order or crisis management. Where a meeting is held, appropriate and necessary organizational and technical measures must be taken to prevent the spread of the disease. What are the risks of breaching these prohibitions?

The penalty for breach of the prohibition laid down by the crisis measure is a fine according to the Crisis Act, which can be imposed for natural persons up to CZK 2,000,000 and for legal entities up to CZK 3,000,000. Moreover, the company organizing meetings, sessions and similar events may be subject to the risk of invalidity of the decision of the authority pursuant to Section 258 of the Civil Code, resp. Section 428 of the Business Corporations Act. According to the case law of the Supreme Court, the court may assess the contested resolution of the general meeting, inter alia, whether the circumstances of its adoption are contrary to the law. Thus, in the event of a dispute concerning the invalidity of the resolution of the general meeting, the application of objections such as the impossibility of shareholders to attend the General Meeting, whether due to the quarantine ordered or the obligation to comply with the crisis measures, can be considered relevant and realistic. In addition, the company may be at risk of quarantining the entire company if coronavirus infection is proven in any of the meeting participants. Practical difficulties, such as ensuring the participation of a notary at a general meeting, must be envisaged and a notarial record must be made. What should be done if a meeting is convened?

As the business of the general meeting cannot take place, this fact should be appropriately notified to the shareholders, ideally pursuant to the method set forth by law or the articles of association of the company in respect of convening the general meeting, but with respect to time and efficiency, it will be sufficient to use the website of the company to inform of such cancellation. Although the convening of general meetings of the company is not of itself prohibited by the crisis measures, it is necessary to consider with the due care of a proper business manager, to what extent and when to spend efforts and financial means to convene general meetings. In this respect, various aspects will have to be considered, such as the planned date of the general meeting, the current state of crisis measures, the urgent necessity of the agenda, the possibilityto decide not to hold the general meeting given the latest developments and so forth.